Despite being the world’s third largest market, many businesses struggle to break into Japan. The “Growing your Business in Japan” free webinar, organized by the SCI’s Science and Enterprise Group and powered by LabLinks, will provide valuable insights into the challenges of growing a chemistry-facing business in the Japanese market, and how they can be overcome. The host, Dr Alan Steven – Chief Scientist at CatSci Ltd and Co-founder of LabLinks, will be joined by:
Featuring speakers with pharma, intellectual property and entrepreneurship backgrounds, this webinar is a great opportunity to learn about the potential strategic pitfalls when entering the Japanese market and how Japanese culture can affect how a business performs in Japan. The free webinar will be held on Tuesday 31st January 2023 at 09:00 – 11:00 GMT
Do not miss the opportunity to meet the speakers, network, participate in open discussions, and gain first hand knowledge on how to successfully enter the Japanese market.
TOSHIBA sells KONE holding – fall-out from Toshiba’s accounting issues
Toshiba
TOSHIBA sells KONE holding: In the wake of Toshiba’s accounting issues, Toshiba announced the sale of its 24,186,720 shares, corresponding to a 4.6% holding in Finnish elevator company KONE for EURO 864.7 million (YEN 118 billion, US$ 0.95 billion).
TELC has sales of approx. YEN 120 billion (US$ 1.2 billion) per year, and employs about 4700 people.
KONE
KONE was founded in 1910. KONE’s annual sales are on the order of EURO 7 billion, and KONE employs about 47,000 people. KONE’s shares are listed on NASDAQ OMX Helsinki Exchange.
Sir Stephen Gomersall on corporate governance: Board Meetings should be like sparkling water – not like tea
Globalization and the art of tea
Hitachi – Japan’s most iconic corporation – under the leadership of Chairman & CEO, Hiroaki Nakanishi embarked on the “Smart Transformation Project” to globalize, to face a world where value creation has moved from manufacturing to innovation and solving customer’s problems, and to overcome long years of stagnation and low profits or losses, despite strong technology capabilities.
One of the most important brains behind Hitachi’s reinvention and globalization is Sir Stephen Gomersall. After a long and successful career as diplomat in the British Foreign Service, culminating in the years as British Ambassador to Japan 1999-2004, Sir Stephen joined Hitachi in 2004 as the first foreigner responsible for proposing and implementing Hitachi’s overseas regional strategy. Later Sir Stephen became responsible for all of Hitachi’s business in Europe as Chairman and Chief Executive of Hitachi Europe, and in addition Sir Stephen also served as Director on the Board of all Hitachi 2011-2014 overseeing all of Hitachi Group’s business as Board Director. With Sir Stephen’s leadership Hitachi achieved major business breakthroughs in Europe.
On March 5, 2015, Sir Stephen gave the “Princess Chichibu Memorial Lecture to the Japan British Society at Ueno Gakuen University in Tokyo with deep insights on Japan-British relations, on comparison of Britain’s and Japan’s position in the world, and on the challenges of globalization facing Japan and Japanese corporations – in particular Hitachi.
Sir Stephen is very clear that there is no alternative to globalization: “Globalisation poses tough challenges for Japanese companies, but is the only way forward”.
Stephen Gomersall was British Ambassador to Japan from 1999-2004, and Hitachi’s Chief Executive for Europe and subsequently Board Director from 2004-2014. He is now Adviser to the CEO, Hitachi Ltd.
Tokyo AIM: LSE sells its share in the Tokyo AIM joint venture to Tokyo Stock Exchange and leaves Japan
Initially, London Stock Exchange and Tokyo Stock Exchange created Tokyo AIM as a joint-venture company in order to create a jointly owned and jointly managed Tokyo AIM, modeled according to the very successful London AIM model.
Nikkei: “Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own”
However, on March 26, 2012 NIKKEI reported that “Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own. TSE plans to improve the rules of its own new market, so that TSE can create a more welcoming market” (our translation of the original Japanese NIKKEI article to English).
London Stock Exchange withdrew from the venture, and Tokyo Stock Exchange took over 100% of Tokyo AIM. Essentially, London Stock Exchange AIM’s venture into Japan failed, while the stock market created by the venture continues without London Stock Exchange’s involvement. As explained in our blog here, these events are very very similar to what happened with NASDAQ about 10 years earlier!
Tokyo AIM is renamed TOKYO PRO Market and TOKYO PRO BOND Market
In 2012, the name was changed from Tokyo AIM, to TOKYO PRO Market and TOKYO PRO BOND Market. Details can be found here:
Combining the amounts of trade for merchandise and commercial services, EU exports to Japan and Japanese exports to EU have reached equal levels, so that the trade between EU and Japan is now balanced around EURO 80 billion in each direction, i.e. a combined trade of EURO 160 billion.
Japan is traditionally stronger in the expert of manufactured goods, while EU is stronger in the export of commercial services. Combining both merchandise and services, the trade between EU and Japan is now balanced.
Investment flow between EU and Japan shows strong impact from the Lehmann shock economic downturn. Investment flow from EU to Japan remains at relatively low levels around EURO 1 billion annually, while investments by Japanese companies in the EU are on the order of EURO 10 billion per year currently.
EU investments in Japan have been relatively constant around EURO 80 billion. There has been a marked reduction in EU investment in Japan in 2006 due to the withdrawal of Vodafone from Japan with the sale of Vodafone KK to Softbank for approx. EURO 12 billion (find details of the Vodafone-SoftBank M&A transaction here). This reduction of EU investment stock in Japan is clearly visible in the graphics below in 2006 and 2007.
Japanese investments in EU are steadily increasing, as Japanese companies are seeking to grow business outside Japan’s saturated market, and as Japanese companies acquire European companies for market access, technology and global business footprint. In 2012 the total investment stock of Japanese companies in the EU-27 has reached around EURO 150 billion.
I was invited to give a keynote talk to about 50 European participants in the EU-Japan Gateway program, which assists small and medium sized European companies to enter the Japanese market.
Japan energy market: “How can a European company succeed in Japan’s energy landscape?”
followed by some advice on how a European company can succeed in Japan, covering the following points:
you often need a taylor made solution for Japan
you need to understand the market, market landscape, need to do your market research
you need to understand the value of your product/service in Japan’s market
you need working capital to build business in Japan, somebody needs to invest this working capital: you, your investors, or in some cases Japanese partners, each option has advantages and disadvantages
some common mistakes – why business development in Japan can fail
H&M entered Japan’s fashion market initially using a green field strategy, opening stores. On September 13, 2008, H&M opened the first store in Japan in Ginza, and is planning two more stores in Shibuya (see picture below) and in Harajuku.
H&M adapted it’s global way of doing things to Japan’s market needs – for example, H&M introduced “Quality Managers& in it’s Japan store, in order to match Japan’s consumers high expectations for quality (and I guess also to avoid problems with Japan’s recently introduced product liability laws).
One week after opening, customers are queuing in line to enter the store – typical waiting time is about 2 hours, daily number of visitors to the store are estimated ot be about 8000/day.
Closest foreign competitors in Japan include US retailer GAP, and Spanish retailer Inditex (Diseno Textil SA)’s ZARA.
Biggest Japanese competitor is Fast Retailing’s UNIQLO.
H&M is preparing to open the second and third stores in Shibuya (photo below) and in Harajuku.
Our comments:
H&M has had a very successful start and has created a successful opening “event”. To be successful longterm H&M will have to:
The EU-Japan Center for Industrial Cooperation held a 5-day intensive course in Japan for executives from EU firms between Monday 19th February – Friday 23rd February, 2007 on foreign direct investment in Japan.
On Monday 19th February Gerhard Fasol gave a talk “Trends in high technology in Japan”, covering the following points:
Today, Monday April 24, 2006 at 7:30am, IKEA invited about 300 guests to celebrate the opening of the first 100% IKEA-owned IKEA store in Japan. We had the honor of working for IKEA – IKEA is another company that “thinks different” in so many creative ways. We wish them all the best in Japan!
IKEA had attempted earlier to establish business in Japan via a joint-venture established in 1974. This Joint-Venture was terminated in 1986, and IKEA ended business in Japan in 1986. Interestingly – and this is not the only such case – its only that IKEA itself at that time failed in Japan. The business IKEA created in this joint-venture actually continued successfully without IKEA even after IKEA had left Japan.
About 20 years later, this is now IKEA’s second venture into Japan.
The photographs shows Mr Koshichi Fujishiro, the Mayor of the City of Funabashi, and Mr Gordon Gustavsson, Manager of the new IKEA Funabashi store sawing the traditional log. Witnessing the log sawing ceremony are Ms Akiko Domoto, Governor of the Chiba Prefecture, His Excellency, Mikael Lindstrom, the Ambassador of Sweden, Anders Dahlvig, CEO of the global IKEA Group and Tommy Kullberg, CEO of IKEA-Japan:
IKEA opening ceremony for the IKEA store in Funabashi
Opening ceremony for IKEA’s store in Funabashi
Opening ceremony of the IKEA store in Funabashi: the Mayor of Funabashi and the IKEA store manager saw a log
A JR-Keiyo Line train with IKEA logos passing the new IKEA store in Minami-Funabashi:
Vodafone failed in Japan not for one single reason but for hundreds of reasons, which can be grouped into two groups
Soft factors:
Japan knowledge at HQ, and knowledge at HQ about the specifics of Japan’s telecom sector (or lack thereof).
choice of management structure (there were attempts to correct the management structure, however too little and too late).
attitude displayed both privately e.g. within the Japanese industry sector and publicly via marketing messages and advertising
choice of executives and lower ranking managers and their knowledge and experience in Japan’s telecom sector (or lack thereof)
lack of sufficient know-how and experience to manage a large Japanese company, and particular the chain of retail stores
and many more
Hard factors:
far too low budgets for infrastructure investment resulting in much lower coverage and network quality compared to competitors NTT-DoCoMo and KDDI/au and TuKa, Willcom and others. As a consequence of far too low investment budgets, Vodafone failed three times to introduce 3G services in Japan. (3G services were not successfully introduced until after the acquisition by Softbank, and after conversion of Vodafone KK to Softbank-Mobile).
mobile phone handsets were inferior to the handsets offered by competitors NTT-DoCoMo and KDDI, and TuKa
and many more
vodafone brand disappears from Japan
Long answer
Find a long answer in this blog post below, in our other blog posts, and in some detail including statistics and financial data in our Softbank Report.
On Friday March 17, 2006, Vodafone and Softbank announced that Vodafone sells Vodafone KK (the totality of all Vodafone operations in Japan) to Softbank.
It has been reported that on Monday March 20, 2006, Softbank started to move all Vodafone KK staff, furniture and equipment from Vodafone KK’s former headquarters in the top floors of the Atago-Greenhills-Mori-Tower to Softbank headquarters in Shiodome (near Shinbashi). Also Softbank started to arrange that essentially all foreign expatriate managers left Vodafone KK – some stayed in Japan working for other IT companies, some returned to European Vodafone divisions, and some pursue telecom careers in USA, India, Bangladesh, or elsewhere.
By total coincidence, I had dinner a high-level manager of Vodafone KK, of European nationality, at the indian restaurant Moti’s in Tokyo-Roppongi on exactly the same day, the Friday March 17, 2006 a few hours after the sale of Vodafone KK to Softbank was announced. I asked him: “Which of the following is true:”
Vodafone never did any market research in Japan?
Vodafone did market research in Japan, but the quality was low?
Vodafone did market research in Japan, but nobody read it?
This Vodafone KK manager’s answer at the indian dinner was (3): market research was done about Japan’s mobile phone market, but the market research was not sufficiently taken into account in the business and strategy planning.
Fact is, that Vodafone KK took many major strategy and market decisions in Japan, which were not related to the realities of Japan’s market. Here one example. When “rebranding” (=changing the company / product / services names) from J-Phone to Vodafone, this “rebranding” campaign was centered on global roaming, i.e. Vodafone enabled Japanese customers to use Japanese J-Phone/Vodafone mobile phones in a very large number of countries outside Japan as well as inside Japan. This was at a time, when Japan’s mainstream mobile 2G phone system which both DoCoMo and J-Phone used was PDC, while much of the rest of the world, especially Europe used GSM. However, what Vodafone overlooked was, that at that time DoCoMo had about 30,000 roaming customers, out of approx. 50 million subscribers, i.e. only about 0.06% of Japanese mobile phone users used international roaming at that time. Thus Vodafone KK in Japan focused their main nation-wide poster and TV and other media campaign on about 0.06% of the Japanese market – less than a niche. (The reason we know how many roaming customers DoCoMo had at that time, is because one of Vodafone KK’s competitors in Japan engaged our company Eurotechnology Japan KK to analyze Japan’s roaming market, and help our client to develop strategy to better compete with Vodafone KK’s roaming products, which were aggressively marketed, and the core of Vodafone KK’s marketing focus).
Another example was Vodafone KK’s strategic focus on Japan’s prepaid market. In 2006 there were about 2.6 million prepaid mobile phone customers in Japan, i.e. about 2.7% of the market, while DoCoMo had about 45,200 prepaid subscribers, i.e. about 0.09% of DoCoMo’s subscribers were prepaid customers. Since the prepaid market in Europe (especially Italy where about 1/2 of the market is prepaid) is extremely important and highly profitable, Vodafone decided on the strategy to focus strongly on the development and growth of Japan’s prepaid market. Almost at the same time however, a national campaign started in Japan linking unregistered and illegally traded prepaid mobile phones to crime, and a law was proposed in Japan’s parliament to outlaw any type of prepaid mobile phones. Thus Vodafone KK found itself on the one hand promoting and investing to develop prepaid mobile phone services in Japan, developing, purchasing (as was the business model in Japan at that time) and bringing to market special prepaid handsets, and organizing national media campaigns promoting Vodafone prepaid mobile phones, while at the same time on the other hand facing the possibility that Japan’s parliament would outlaw these same prepaid mobile phones, and a broad press and TV national discussion on how prepaid mobile phones are linked to crime. The end result was, that instead of outlawing prepaid mobile phones, it was decided to introduce far stricter registration requirements and ID requirements for mobile phones and especially for prepaid mobile phones, and the unauthorized/unregistered sale or transfer of prepaid mobile phones in Japan was made a crime. The end effect for Vodafone of course was a commercial failure of Vodafone’s prepaid mobile phone campaign, in addition to a general decrease of ARPU (average revenue per user).
As a consequence of these and other factors, Vodafone KK’s market share continuously decreased, subscribers moved from Vodafone KK to DoCoMo and KDDI/au, and the financial performance of Vodafone KK deteriorated, in the end convincing Vodafone that the best option was to sell Vodafone’s Japan operations and terminate business activities in Japan.
You can find further details and statistics, financial performance and market share data during this period in our Softbank report.
Bloomberg: Vodafone-Japan CEO Tsuda seeks growth in Japan, not sale
About one year ago, in an interview with Bloomberg (“Vodafone KK’s Tsuda seeks growth in Japan, not sale“), I mentioned that a sale of Vodafone’s Japan operations to Softbank might be the way Vodafone will go in Japan. This seems to be happening now and negotiations to this effect were confirmed by both Softbank and Vodafone over the weekend.
The potential deal
Although a deal has not been closed yet, it is widely reported that a sale of Vodafone’s Japan operations to Softbank is very likely to be closed within a few weeks. What could this deal look like?
As reported by Bloomberg Vodafone KK’s capitalization at the point of delisting from the Tokyo Stock Exchange was around YEN 1.4 Trillion (= about US$ 12 Billion). Bloomberg mentions estimations by London based analysts who value Vodafone KK in the range US$ 14 to 16 Billion. Of course, if a deal is actually concluded, it might be a complex deal with several components, not just a simple cash price, and any cash value will not be determined by analysts in London, but on the negotiating table between Softbank and Vodafone, and the final deal could be more complex than a simple sale against cash payment.
In any case, this deal – if it happens – promises to become one of the largest M&A transactions ever in Japan sofar in terms of cash value. Vodafone is reported to prefer a cash deal, and Softbank has been reported to consider a leveraged buy-out (LBO) where Softbank will take debt against the to-be-acquired company.
It has also been reported that Softbank seems to be planning to change the name of the resulting company, so the “Vodafone” brand is not likely to survive in Japan.
What is Softbank likely to do with Vodafone’s Japan operations
An acquisition of Vodafone’s Japan operations will be the completion of Softbank‘s march to build a full-scale telecommunications group on a par with NTT and KDDI through a series of acquisitions plus internal growth.
Softbank in this new shape will become a much more serious competitor for NTT and KDDI, which both have succeeded to transform themselves from former monopolies into some of the world’s most advanced telecom operators.
In a sense Softbank is already where DoCoMo and KDDI are working very hard to get to: DoCoMo and KDDI are working hard to build content and transaction businesses (such as shopping, financial services, auctions and music), because pure traffic revenue (ARPU) is driven down by relentless competition.
Softbank is strongly linked to YAHOO-Japan, and YAHOO-Japan demonstrated it’s strength by driving eBay out of Japan – so Softbank is already where DoCoMo and KDDI want to go. All Softbank still needed was a wireless network, and with a Vodafone acquisition, Softbank will have a wireless network much faster than expected.
A Vodafone/Softbank deal will not be a good development for eAccess/eMobile, and eAccess/eMobile is reported to have submitted documents to Japan’s regulatory authorities regarding Softbank’s wireless license. It will be interesting how the regulating government ministry will decide on the regulatory aspects of any Softbank/Vodafone deal. In the past few years Japan’s government has been singularly focused on creating the conditions to make Japan the most advanced IT market in the world, so I think we can be confident to expect a wise decision – wise for Japan, not necessarily beneficial for particular mobile operators.
What made Vodafone change it’s mind about Japan?
As reported by Bloomberg, one year ago Vodafone had the clear intention to remain in Japan for the next 10, 20, 30 years. What made Vodafone change it’s mind?
As widely reported, Vodafone was loosing market share in Japan’s mobile phone market over the last several years.
With number portability being introduced in Japan from autumn 2006, and with three new operators entering the market during 2006-2007, the competitive environment will become much more severe than it is now, decreasing pure network profitability, while at the same time massive network investments are necessary.
Analysis of Vodafone-Japan’s subscriber numbers shows that early warning signs appeared already in 2002 – 2002 would have been the time for Vodafone to take decisive action to turn the business around in Japan.
Today’s top article in Nikkei is about Cable and Wireless-Japan: the article reports that Cable and Wireless is in discussion with Softbank and a private equity firm to sell their Japan operations. Apparently this news article is not confirmed, and it already mentions a purchase prize on the order of US$ 100 million. This article appeared in the top position in Nikkei – but there are several things a bit mysterious about it.
I did not follow Cable and Wireless recently in Japan, but it seems that C&W made a loss of YEN 61.6 OKU on sales of YEN 713 OKU, i.e. almost 10% loss.
Spent all morning discussing with one of the innovation managers of a big European telco. Interesting. Spent afternoon with a US bio-tech company which which is thinking of asking us to build their business in Japan, and in the evening listened to a talk by Tadashi Onodera, the CEO of KDDI. Expected him to talk mainly about mobile – but he did not. His focus was a national VOIP network they are building, attacking the fixed line income of NTT. Got hold of him after his talk and discussed with him for about 10 minutes.
UPDATE: on October 26, 2004, Softbank announced the acquisition of Cable & Wireless IDC. Total cost of the acquistion is announced as YEN 12.3 billion (= US$ 110 million)
TELC has sales of approx. YEN 120 billion (US$ 1.2 billion) per year, and employs about 4700 people.
KONE
KONE was founded in 1910. KONE’s annual sales are on the order of EURO 7 billion, and KONE employs about 47,000 people. KONE’s shares are listed on NASDAQ OMX Helsinki Exchange.
